Do banks’ right hands know what the left is doing?

04/06/24 • 39 min

◆ Do investors want unified capital markets coverage?
◆ Corporates fear democracy
◆ Why are FRNs trending?
◆ Second lien mortgages in arrears ― yes please

Banks’ urge to cut costs in debt capital markets, especially syndicate desks, is prompting some to call for the ‘global capital markets’ model: one team for equity and all kinds of debt.

They argue this could heal banks’ disjointed thinking and allay investors’ frustration that they have to say the same thing to five different bankers at every firm. But there are plenty of sceptics...

Few in the corporate bond market expected its rally to last into this year, still less the second quarter. But here we are and it’s still running. A motley bunch crammed into the market this week and found a great reception. As Mike Turner explains, they’re partly packing the funding in to avoid this year’s great big risk event: the US election.

Floating rate notes are the natural product for banks to issue, but normally they don’t much, because most investors prefer fixed rate bonds. So why are investors gagging to buy floaters now, just when everyone agrees interest rates are about to fall? Sarah Ainsworth goes through the ins and outs.

Second lien mortgages are the kind of — shall we say 'challenging' — collateral familiar from the US securitization market, but as George Smith and Victoria Thiele highlight, the UK has produced four deals in the past five months. The latest, from Equifinance, had some pushback in the market, but investors were only joshing and bought it in the end. We ask if lower ranked mortgages are the hot new asset class.

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◆ Do investors want unified capital markets coverage?
◆ Corporates fear democracy
◆ Why are FRNs trending?
◆ Second lien mortgages in arrears ― yes please

Banks’ urge to cut costs in debt capital markets, especially syndicate desks, is prompting some to call for the ‘global capital markets’ model: one team for equity and all kinds of debt.

Previous Episode

Does experience matter on syndicate desks?

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In the second part of GlobalCapital’s exploration of how bond syndicate desks are changing, after a swathe of the discipline’s senior bankers have been made redundant, we discuss the syndicate job itself.

Technology and market transparency have stripped away some of the grunt work, but also made knowledge easier to come by. Are banks thinking they don’t need so much experience on desks?

Bankers admit pricing bonds has often become more routine. But when markets get difficult, or situations do, as with Equinix’s recent pulled deal, you need experience.

We also talk to Ana Fati and Mike Turner about the latest plunge down for Thames Water after shareholders refused to put in much needed equity. What are bond investors and lenders thinking about the UK water sector?

And it’s been a huge week for African bond markets, with Zambia finally getting its official creditors and bondholders to agree to a restructuring. This one is meant to be tougher to bondholders, but if Zambia does well economically, it will have to pay extra. George Collard explores whether that is a good thing, or will prove a burden.

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Holy mountain mama: 'nuns on rampage' as W Virginia bans banks in ESG escalation

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◆ Why everyone from nuns to pro-coal US state treasurers are giving banks stick over ESG
◆ El Salvador's punchy new debt structure
◆ Appetite for duration in covered bonds
West Virginia: almost heaven unless you're on state treasurer Riley Moore's list of banks the state won't do business with over fossil fuel financing. But unlike most ESG-related exclusions, in this case opprobrium is reserved for financial institutions deemed to be anti fossil fuel.

Bank of Montreal has dodged making the list in a week where four others were added. But the pressure on banks to behave a certain way over ESG is mounting on both sides with some nuns in the US taking Citi to task over what they see as exploitation of indigenous people.

We look into what this means for banks picking a treacherous route to building their ESG credentials while trying to make money serving traditional clients. We also examine what investors in their bonds think.

Investors had another tricky consideration to make this week as El Salvador issued a funky new structure as it looks to beat its debt distress. We examine the new bonds and what the market reaction to them.

Finally, we discuss the growing appetite for long dated covered bonds.